A 轮融资现状、风投闲置资金与 IPO 窗口重启，对话比尔·格利与布拉德·格斯特纳

David Friedberg (00:00:00): I'm recording you. How's my hair, Nick? Do I look ridiculous and shit over the hat? Oh my god. I went to the teaching salon in for a haircut a few days ago? Brad Gerstner (00:00:09): They're teaching salon. $10. Jason Calacanis (00:00:12): You got $10 worth of value. David Friedberg (00:00:14): My neck was literally bleeding. The guy cut my neck. Like, 6 places. He's diagonal on the back. Jason Calacanis (00:00:21): Oh, good. David Friedberg (00:00:23): And and and he was stoned the whole time I walk in. He's like, what do you want? I'm like, I booked this thing. He's like, shit. Okay. Sit down. I thought I was like in a barbershop candid camera. Brad Gerstner (00:00:33): You possibly do that? Jason Calacanis (00:00:35): There was David Friedberg (00:00:35): nothing available. I told my wife. I'm like, get me any hair appointment, anything. I just gotta get my haircut in so long. And then she's like, oh, I got you an appointment at the teaching school. Oh, I'm like, that's high end. All the hair salon stylists go there must be awesome. This guy fucking butchered me. Jason Calacanis (00:00:49): Guys worth over a 100,000,000,000 to get a $10 haircut. David Friedberg (00:00:52): Fucking $10. And then he's like, what would you like to tip? I'm like, here's a tip. You should be a fucking barber. Jason Calacanis (00:00:58): Get a new career. Yeah. The weather winter ride. Rainman, David Sachs. David Sacks (00:01:10): We open source Jason Calacanis (00:01:10): it to the fans and make discoveries. Alright, everybody. Welcome back to the all in podcast episode 1 for 1. Shamoff Palihapitiya has gone missing somewhere in the Mediterranean. We've sent some search crews out. We got some beacons. We're trying to find him, but he is not here today. There'll be no conspicuous consumption or discussion of truffle season, Hawaiian. But instead, we went to the BG squared. If you got to come to all in summit, 2022. One of the highlights of the event was having 2 BG's, Brad Gersner, and Bill Gurley on the pod. So we thought for all star summer, we would bring in some all stars here. Welcome back to the pod 5th bestie, Brad Gersner. And Bill Gurley. How are you, sir? Bill Gurley (00:02:00): I'm doing great. Thanks for having me on. Jason Calacanis (00:02:02): Bill, you you don't do a lot of press. You don't do a lot of pods. And, I know you're on a lot of boards, but you're not part of Benchmark's next fund. So people are wondering, are you retiring? What are you to. I know you're still god always bored you're on, but what's Bill Gurley up to these days? Bill Gurley (00:02:19): Yeah. Appreciate that. I as you mentioned, I'm on 9 benchmark boards still, so I'm working with those and and doing the classic work that I've been doing my whole career. Second thing is I've I've started I've done a handful of angel deals about 1 100th, the, the frequency of Jay Cal here, but, but a few. Speaker 6 (00:02:40): So dip in Bill Gurley (00:02:41): my dip in my toe in the water. And then third, I've been working hard on a on a book. We've got a co writer. We've been doing a ton of research. We've got a proposal ready to go on an agent. We're gonna go out to publisher soon. Jason Calacanis (00:02:53): Oh, well, you should just do Harper business. I'll put you in touch with Hollis. Speaker 6 (00:02:56): That's Okay. Jason Calacanis (00:02:57): The winning That's the best business publisher in the world. Speaker 6 (00:03:00): And, Bill Gurley (00:03:01): Perfect. Brad Gerstner (00:03:02): No. I'm Harper. David Friedberg (00:03:03): Harper Collins business. Everyone's publisher. World's biggest publisher. David Sacks (00:03:07): And Bill, can you tell Jason Calacanis (00:03:08): us what the the thesis? Bill Gurley (00:03:11): Yeah. It's a it's it's a further development of a of a speech I gave at, University of Texas. Business school about, how to chase and succeed in your dream job. Oh, nice. Jason Calacanis (00:03:23): Hope she'll career advice letter to a younger girl? Is that what this is? A letter to a younger builder? Bill Gurley (00:03:28): I didn't wanna do, like, oh, here's my, you know, thoughts on venture capital that didn't feel right. This is something more passionate about. And I, some might, I hope, will be impactful to a lot of people. I've already gotten quite a bit of feedback from people that have been moved by the the the shorter version on the, on the presentation. Jason Calacanis (00:03:46): Well, when you when you look back on your career, unpack it for a minute, what what do you think the things you got right were or the things, you know, you might change in terms of your career and and being happy and finding your passion. Bill Gurley (00:03:59): Yeah. I do feel super fortunate that I was able to do, you know, my, my dream job for over 2 decades. And, I love innovation. I love betting and gambling. And I love the combination of being able to think through markets and disruptions and and to be able to place bets and all those things are super exciting. Things that got right studying history, which is something I talk a lot about, and we'll be talking about in the, in the book, like knowing who the, the patriarchs were of your industry and knowing what they thought, I think, is super powerful in any endeavor. And then networking, you know, just like crazy, which I think is actually easier today So those are a couple of the themes that that we develop. Jason Calacanis (00:04:44): Networking and studying history. Specifically, you and I have had many conversations about biographies. We both share a passion for those top biographies, not of business people, but that had an impact on you. And then I'll go around the horn, top biographies that had an impact on you. Preferably ones that are in business, but if it is business, I guess it's okay. Bill Gurley (00:05:03): One that that actually led to me developing this theme was was learning more about Danny Meyer's journey, who is the renowned restaurant owner in New York City and the founder of Shake Shack but he had a career where he was in sales. He was about to go to law school. And his, I think his uncle told him, what are you doing? You know you want to be a a restaurant owner, and he stopped that day, took a job at 10 k a month or 10 k a year. He took like a, wow, 90% pay cut. And started studying, and that gets into the history part, but he just started studying. And, obviously, the rest is history. For those of you that know about Danny Meyer. Jason Calacanis (00:05:44): Set it setting the table is the book. Bill Gurley (00:05:47): Yep. I missed the book. Jason Calacanis (00:05:49): That is the book. Union Square Cafe Graham Machine Tavern amongst some of his great restaurants going around the horn here, Friedberg, You have a favorite biography you read or something that impacted you young, in your career. And then do you feel like you you figured it out and and what did you what what would you change about the early part of your career? So the same two questions. David Friedberg (00:06:08): That's a 3 very loaded questions. I don't know how to pick which one you wanna answer that one. I will tell you when I was running my company in 2011, Yeah. The Climate Corporation. I read the Walter Isaacson, biography of of Steve Jobs. Yeah. And he actually profiled a number of jobs as management techniques. My only operating role prior to that was working at Google. So that was the only management experience or exposure I had had. And then reading about how jobs ran his management team. It actually changed my behavior going into the office. I I I took a very different approach, and I saw the results almost immediately. Jason Calacanis (00:06:48): What was the primary thing that impacted you? David Friedberg (00:06:50): Well, first of all, like, having the cadence and the and the directness with the team engaging the team fully in discourse immediately making decisions, getting everyone to commit, moving forward very quickly, I was the first time CEO, so I never had a good mentor and reading those segments of jobs as management style in his biography was just a really great tool to add to my emerging toolkit on how to be a manager and how to be a CEO and how to run a company. That was big for me. I could rehash everything about early on in my life. I don't think that's Speaker 6 (00:07:24): a good David Friedberg (00:07:25): use of that, but, yeah. Jason Calacanis (00:07:26): I6 then's bug on Elon coming out in a couple of weeks. Which should be interesting. I I I sat for an interview with Walter for that one. So I'm interested to see how that turns out. David Sacks (00:07:36): Yeah. I did too. Jason Calacanis (00:07:37): I I was asked to. I didn't, you know, we were asked to. You didn't do it? No. I did it. I did it. I you know, I don't I I didn't ask to do it. I got asked, you know, if I would Right. Give some anecdotes. I think Saks also got asked if he would do some anecdotes. So I think it's gonna be pretty good, and and Walter was hanging around. Speaker 6 (00:07:53): He's been David Friedberg (00:07:53): putting messages out on Twitter. Right? Jason Calacanis (00:07:55): Yeah. I mean, he's such a good writer and in just watching him, you know, David and I were at Twitter for a little bit and, you know, just being David Sacks (00:08:01): He was hanging out. He was like, you know, in the corner of the room, like, participating in a lot of these meetings. Yeah. So he was there basically during the whole transition. I think that was gonna be the ending of the book is, you know, he had to cut it off at some point, but he was there for the 1st month of the transition. Of the Twitter takeover. Jason Calacanis (00:08:19): And for rocket launches and everything in between. So he he I mean, watching his biography technique is, it's pretty intense, and he spends a long time with the subjects and, you know, just taking notes and talking to everybody around him. So he would, you know, peel off sacks or peel me off. Hey. Ask you a question about this or ask you a David Sacks (00:08:37): question about that? Jason Calacanis (00:08:38): What do you think of this? David Sacks (00:08:39): Well, Jake, speaking of books, I'm in the rare position of needing your advice Jason Calacanis (00:08:44): Oh, okay. Here we go. Wow. I think that's a compliment. Maybe sort of a compliment. Okay. So Harper Collins. David Sacks (00:08:52): I'm gonna do a book. About Okay. How to create run, scale, operate software companies, which will be an extension of the blog I've been writing for a couple of years, which I haven't even been active on mainly because I've been using that time for this pod, but Speaker 6 (00:09:06): Mhmm. I David Sacks (00:09:07): was writing at a pretty good clip until we started doing all in pod. So I wanna get back to putting that together. Yes. And I could go chapter by chapter. You know, here's how you should think about marketing. Here's how you should think about sales. Here's how you should think about finance metrics and so on. But I'm not sure that's the best way to present the material. So Speaker 6 (00:09:25): Yeah. David Sacks (00:09:25): Do I just write the book that I think it should be, or do I work with a publisher on what the business book should be and they kinda give me the guidance? Jason Calacanis (00:09:35): So it's a great question. You are in a unique position where, you know, you're successful and you have an audience for the book and success for you is for, you know, great founders to read the book and for it to have impact. As opposed to somebody who's an author who just wants to be published, right, so you have a different reason to do this. I think you should write the book. You should decide who you want the audience to be and what you want to get out of the book, and you should forget about publishers in the whole grand scheme of things. Then when you write the treatment, you write the first five chapters or so, then you can bring it to a select group of publishers. You can get an agent. I can introduce it to 2 or 3 agents. There's, you know, a top 2 or 3 in this field. And, I think what you should do is the business advice is out there. Right? And the techniques are out there. But what you have is you have worse stories. So the technique I used in my book, Angel, was to, you know, talk about techniques and investing that I had learned from other folks, including Bill Gurley and Michael Maritz or whatever, but then I would give my anecdotes, things I had experienced personally. And what that does is it makes the examples let people really get some narrative out of the book. And so the lesson combined with the actual practical experience, that's kind of the magic of these business books, I think. Do you have a favorite biography yourself, Sachs, either business or a non business? David Sacks (00:10:55): I don't think I I read a lot of business biographies. Really? So I read a Speaker 6 (00:10:59): That's true. David Sacks (00:11:00): I read one business how to book. Back in the PayPal days. You know, I didn't have any real business education. Jason Calacanis (00:11:08): Good to great. Do you remember what it was? David Sacks (00:11:09): It was good to great. Jason Calacanis (00:11:10): Yeah. I mean, that was the seminal book at the time. David Sacks (00:11:13): So I read this book and literally one chapter was on how you should stick to your core idea And then the next chapter was about how you should be flexible. Speaker 6 (00:11:23): So I'm David Sacks (00:11:24): like, well, both of these ideas are right situationally. Jason Calacanis (00:11:27): Yes. David Sacks (00:11:27): But so how do you decide? So Right. I came away from the book thinking this isn't really gonna help me because it doesn't give you what you really need, which is what are the specific situations in which you should apply given principle. Yes. And I kinda came away from, like, thinking that business self help books just weren't that they're too theoretical and weren't that helpful. Jason Calacanis (00:11:48): But then this is where biography has really become helpful because you actually get to see why the, you know, technique was deployed. Brad, do you have any business files that you, You Brad Gerstner (00:11:57): know, related to that about sex, sex do not write a how to book. David Sacks (00:12:01): Yeah. Brad Gerstner (00:12:01): Right? Write a book about your Speaker 6 (00:12:02): visceral experiences, right, that just you happen to teach people how Brad Gerstner (00:12:02): to along the way. Right? You have a lot of, you know, I I I just think the story is is is powerful. Holy Jason Calacanis (00:12:14): shit. What? Brad Gerstner (00:12:18): Unbelievable. Jason Calacanis (00:12:21): Is it calling zoom bombing when you just zoom? Speaker 6 (00:12:25): On. Speaker 7 (00:12:35): Thank you to the Starlink team yet again coming to the rescue. Jason Calacanis (00:12:38): What is this? Oh. Speaker 7 (00:12:40): That was You know, I didn't Jason Calacanis (00:12:41): see too much like that. All star team. Speaker 7 (00:12:42): No. I just wanted to come and say, hi. Brad Gerstner (00:12:44): It's funny, guys. You have to hang. David Friedberg (00:12:46): This is the classic version of the Brady Bunch right here. What happened? Jason Calacanis (00:12:50): You are you lost and see? We tried to get you. We can find you the yacht was missing. The dinghy's missing. We sent out search crews. Brad Gerstner (00:12:58): Hold on. Your camera ain't going. You look like Tiger Woods in this shot. Speaker 7 (00:13:02): A guy, a guy that I work with, they're the Michael Bridges of the all in podcast and that you haven't missed a podcast since the beginning. So then That's the only reason why I've got a box I'm having into this in your head. Yeah. Yeah. It's in my head. I just wanna Speaker 6 (00:13:14): make a business since you are. Speaker 7 (00:13:14): Anyways, I just had a tip. Love you guys. Enjoy the pod. I'll talk David Friedberg (00:13:18): to you later. I'll watch Bill Gurley (00:13:19): Bye bye. What about that? Jason Calacanis (00:13:20): The Iron Man Street continues. He didn't wanna give up his room. Bye bye. Love you, Misty. He's drunk. He thought it was a drunk zoomed off. David Sacks (00:13:28): Remember he's 9 hours ahead. Brad Gerstner (00:13:29): Jake, how to answer your question? Jason Calacanis (00:13:31): Yes, please. Brad Gerstner (00:13:33): Teddy Roosevelt man in the arena, Phil Knight, Alexander Chamath, those 3 for me that, like, the takeaway, the the the red thread that connects them is do shit that matters. Do stuff that matters. Your life is short. Get in the arena, major in the majors, but do stuff that matters. So they all inspirations for me, both in terms of how I organize my own life, but also how I think about investing. Jason Calacanis (00:13:57): Fantastic. And I'll give you a couple of ones that you may not have thought of. Something like an autobiography, the biography of Akira Curasawa, the famous film director. Absolutely outstanding. Great recommendation. I'm gonna David Friedberg (00:14:09): I actually wanna read that. That's a great question. I'll read that. Who wrote it? Jason Calacanis (00:14:13): Akira. It's an autobiography. David Friedberg (00:14:14): Oh, it's his autobiography. Jason Calacanis (00:14:15): Oh, wow. Born standing up. Steve Martin Bill Garland talked about this one, and it really is fantastic. I I've actually listened to it twice. And that's one of the great things about these biographies. You'll listen to them a second time. Here's another one. Sachs, this is critical for you on writing. Oh, listen to that. David Friedberg (00:14:36): You've listened to it? Bill Gurley (00:14:37): Who's buying free? Fantastic. Jason Calacanis (00:14:38): Steven King. David Sacks (00:14:40): Oh, Steven King. Jason Calacanis (00:14:41): On writing might be top 5 for me of all time. And he really goes into, like, the story of Carrie. He wrote, like, a small treatment of Carrie, he was a math teacher, he threw it in the garbage, he was so frustrated with his wife sees it in the garbage. She reads it. She says, this is incredible. You should keep writing it. He writes it. He sells the book for $10,000. She's getting paid, like, 9 $1000 as a teacher, he can't quit his job. And back in the day, they used to sell your hardcover rights and your paperback rights separately. If your hardcover went well, then you would do a a a paperback and go mass market. He gets a call. They sold the rights to the mass market book for $400,000, the paperback. This agent gets on the phone and says it's $40,000, and he thinks he hears 40,000 is, well, $40,000. That's incredible. That's 4 years. I might be able to quit. My job as a teacher because, no, no, it's 400,000. He says, okay. So $40,000 divided by 9. It's like, it looks like maybe it's even closer to 5 years. He says, no. You're you're getting 400,000. You can't believe it. And that was basically the story about Stephen King. Bill Gurley (00:15:42): Would it be great great to listen to prior to writing a book. He's, it's it's it's super amazing. Most people don't know this fact, but King wrote the novella that became. Jason Calacanis (00:15:54): Absolutely. Yes. David Sacks (00:15:55): That's right. Jason Calacanis (00:15:57): He's got a lot of those. You you didn't know it. And then the Malcolm biography is amazing too if you haven't read it. So those are just non traditional ones, people following their passion. One of the things about it is the stream effort in the decades of perfecting craft that I found super appealing about these. Nothing happens, easily. David Friedberg (00:16:14): In your honor, Jake Hall, the rest of the at the 7 seminars to share 7 samurai, by the way, if you're a startup founder, Andre Moneira, CEO, best film to watch. Jason Calacanis (00:16:24): Because Well David Friedberg (00:16:27): yeah. I mean, there is no there is no giving up. There is a you do what it takes. And you persist. I think persistence is one of the biggest I've talked about this. One of the biggest predictors for success. And there's a a character that emerges Once you're facing challenge, this film does such an incredible job of demonstrating the essence of that character. Speaker 6 (00:16:49): Yeah. David Friedberg (00:16:50): I think it's also a similar character that's needed in But if you read for Jason Calacanis (00:16:53): a song's biography, you'll see that a number of the actors in that film occur in other films by Curisawa. David Sacks (00:17:03): Uh-uh. Who who that star is? Jason Calacanis (00:17:05): The Tesira Mifune. Yeah. He's not who David Sacks (00:17:07): plays in all of he's just found an all He Jason Calacanis (00:17:09): was his viewers. He was he was he was squirt to De Niro George Sorsese. Yes. Sorsese sort of modeled his relationship with De Niro after Curisawa and George Lucas, Curtis Fort Coppola were all disciples of Curisawa's you know, credible. David Sacks (00:17:26): Well, the, 7 samurai was remade as a Western. I mean, it's in 7 with, I think, Steve McQueen and Yule Brenner. Yep. A lot of Chris always movies were remade as westerns. Speaker 6 (00:17:37): Yep. David Sacks (00:17:37): It just works pretty well. David Friedberg (00:17:38): And they were they were all scored by any omoracony? Jason Calacanis (00:17:42): Lot of them by Intermark Arney, which I was listening to in the coal plunge. I started in the coal plant. Oh my god. I it's I would just like to say I'm just a hearty fuck you. This is such a random show. We have not Well, we'll get there. But, I mean, I just wanna start the podcast by saying, fuck you to keep us. David Friedberg (00:17:55): Is there anything else that's gonna be talking about on the show? I'm like, I don't Jason Calacanis (00:17:58): Joe Rogan and all these assholes who said in order to be, like, successful, you have to jump in a coal plunge. Because now I've done it four times out of the last, like, I'm doing it every other day, and they're right. I feel like a superhero after I do this. Anybody doing cold plunge here besides to me and Shaman? No one. Occasionally. David Friedberg (00:18:17): Well, I mean, we I was in Mexico. Jason Calacanis (00:18:19): A really occasionally. David Friedberg (00:18:20): And they had this this this cold plunge thing, and I did it every day that we were there at the the hotel, but then we came back. Well, it it's it's you get this endorphin runcha rush afterwards. It's incredible. And then afterwards, now when I go to the gym, I only do, like, a 10 minute ice cold shower afterwards. Like, it's critical to, like and it feels amazing. You feel like so relaxed after. Jason Calacanis (00:18:39): You you'd I did. I did 6 I did 5 or 6 minutes at 58 degrees. I've been lowering it 2 degrees a day, but the first day I get it at 43 or 44, for, like, 45 seconds. And my body started shaking. I got hypothermia instability bill. You've done it? You've done this nonsense? Bill Gurley (00:18:54): Occasionally. Occasionally, I'm still not convinced there's any medical that's it to it. But you got the center. You've center out. Shoot. It's very trendy. Jason Calacanis (00:19:07): I have an inference on it too. So I'm doing inference, so I'm having to start a pickleball Speaker 6 (00:19:12): motorcycle bikes. Right. And motorcycle bikes. Speaker 7 (00:19:12): He might Bill Gurley (00:19:17): cold spots. Jason Calacanis (00:19:18): And we weren't gonna lie. David Friedberg (00:19:19): By last week, it's been failure. Exactly. Jason Calacanis (00:19:22): You just take your take your fight into the cold fudge, and then you rock it into the infrared sauna, and then you go play pickleball. Brad Gerstner (00:19:29): Yeah. Jason Calacanis (00:19:29): Okay. And you're wondering why everybody hates us. Life styles of the abhorrent. 1%. Alright. Listen. By Speaker 6 (00:19:39): the way, it's a David Sacks (00:19:39): couple other rentals that are where Curisawa films are worth watching it. Actually, he did he did versions of Shakespeare, which I think is really interesting. Jason Calacanis (00:19:47): Absolutely. David Sacks (00:19:48): So Khurosawa took on Shakespeare and then Hollywood kind of adapted Khurosawa. But a couple of really good ones throwing a blood was Parasawa's adaptation of McBeath. And then Rand was his adaptation Kingley are 2 of my favorites worth checking out. Jason Calacanis (00:20:02): Hidden Fortress also great. David Sacks (00:20:04): Hidden Fortress became the basis for Star Wars, or it was a big influence. Jason Calacanis (00:20:08): Yeah. The r 2 d 2 and C3p characters, C3p0 characters who are, like, sort of telling the story are in the hidden fortress. You can see the direct decided to say, but for me, the genre I love for Curacao is his film noir era, Shredog, I and Lo. I mean, these are Exceptional films. And high and low, I wanted to remake when I was thinking about being a a film director, and it turns out Spielberg owns the rights. High and low. I'm incredible, sir. David Friedberg (00:20:34): But I Jason Calacanis (00:20:35): oh, we digress here. David Friedberg (00:20:36): Let's get to the doctor. Just one one last anecdote. You know, the judicial breaking bad. Was inspired by Akira, the Curacao film about a guy who finds out he's gonna die. And when he finds out he's gonna die, suddenly he becomes Jason Calacanis (00:20:49): One of my things. David Friedberg (00:20:49): It's true self. Like, was this true, like, nature comes out. Jason Calacanis (00:20:52): So David Friedberg (00:20:53): An incredibly poignant film that obviously inspired the the extraordinary TV show breaking bad. Yeah. Jason Calacanis (00:21:00): Akira is, means to live in Japanese. And this is a story of, somebody who is basically lived a modest, a mid. It's somebody who lived a midlife, but then at the end, decides he wants to do something meaningful with his little pittance of money and to make an impact on the world. And so he decides he's gonna take a a parking lot that's disgusting and fell with garbage and make it into a a kid's playground so people can enjoy their life. It is Speaker 6 (00:21:26): and it Jason Calacanis (00:21:27): and it's also it's, Tashira Mafune as an old man. So in a way, this parallels their careers and trying to do something important. There's another one I live in fear. So those two to live and I live in fear about aging and getting old. The genre, if you don't know Kiera Corsawa, you know, just you're gonna need to be a little patient because it doesn't have a 1000 cut per minute, like modern films. It's not the transformers or a marvel film, but it's well worth it if you can get your ADHD on a control. Speaker 6 (00:21:57): I David Sacks (00:21:57): would start with the semi movies. Bill Gurley (00:21:59): I get rid of the David Friedberg (00:22:00): super 700. David Sacks (00:22:01): Yeah. 7 samurai throwing a blood and and ran. Jason Calacanis (00:22:04): Yeah. You go there. And then there's, I mean, if you wanna go super intellectual rashomon, Yeah. Which is about truth. David Friedberg (00:22:11): Every people's different perspective. Every film theory every film theory class starts across similar. Jason Calacanis (00:22:15): Yeah. So there there's your, USC, film school divergence. David Friedberg (00:22:21): Save a $100. Okay. Cool. Jason Calacanis (00:22:25): We'll see you all at UCLA. Yeah. Okay. VC market update. Carta has released a series a funding map covering the first half of twenty twenty three, but the date is what's interesting. They covered, and and Carter basically manages cap tables and and stuff like that for folks. Original company was Eshares, I think. This is a funding map which just shows, like, how much money was raised. Nothing really too consequential in there, but what's really interesting is the data on series a rounds. Series a rounds are typically the rounds when a benchmark of Sequoia a craft come in and, you know, join the board and put in a a significant check. Before that, you have angels, and see investors. And after that, you have growth funds. But the series a is considered like a seminal moment in the history of a startup. Median round, is now 7,000,000 raised. That's down 26% year over year. And this is all data from the first half of the year. So first half of twenty twenty three versus twenty twenty two, which was a really crummy year. We're down from the crummy year 26% on the dollars raise 7,000,000. And the the pre money valuation, 40,000,000 down 17%. So last year, it was 11,000,000 raised on 48 I don't have the 2021 data here, but it would be even more. So just right off the bat, Reactions, I'm sorry, you, Bill, girly, to what we're seeing in this series a space. This is a return to normalcy. I mean, the series a's back in the, you know, Uber days and Airbnb days were, what, 5, 10,000,000 bucks on a 30,000,000. So this is returned to normalcy? Bill Gurley (00:24:00): Yeah. I don't I don't think you've gone quite back to that line. Right? And so I think there's still a significant amount of competition. At that level. And, the fact that it's off a little bit is is noteworthy, but it's not like off 50%. Right? I think that market remains competitive. I think there's a number of great people out there investing at that level. And I and of course, the AI deals. Like, one thing that might be interesting is if you pulled the AI deals out, I bet those numbers would would be more akin to what they were 2 or 3 years ago because those are being done at 200. Jason Calacanis (00:24:37): Is the reason you went to angel investing or seed investing, let's call it, because it's so crowded and competitive at the series a level and what seed investing is now is what series a investing was for the 20 years of your career. Bill Gurley (00:24:52): Nah. I I do. Okay. I think if I were practicing institutionally, I would I would state, the series a level, and dig board seats, and try and get as much ownership as possible, which is the, then the benchmark strategy. I, I, this is more of a hobby thing for me. Jason Calacanis (00:25:11): Got it. Bill Gurley (00:25:11): And I don't want board seats anymore. Jason Calacanis (00:25:15): But it's super super crowded at series a still to this day. Yeah. Bill Gurley (00:25:19): I said it was competitive. I don't know that it's super crowded. I think a lot of people realize that if you can get 2 a half or 3 percent management fee investing $300,000,000 out of pop, that's an easier lifestyle than actually taking board seats and doing work. And so I think a lot of money and activity got pulled into the late stage market, nearly every firm started doing that. And and once the once the center of gravity goes there in a firm, you know, and you're investing 200,000,000 a clip. Can you imagine the Monday meetings like who's paying attention to the person that's putting 5,000,000 out at a time? Like, it it'd be hard for that. David Friedberg (00:25:59): It's like going Jason Calacanis (00:26:00): to playing high stakes cards and then you get invited to it. You're playing, you know, 204100, 100, 200. And you go to 510 games. Bill Gurley (00:26:07): Like It's it's up there. The team and who's paying attention to the person playing in the little game. And so I actually think the number of people that practice at that level has actually gone down. But that doesn't mean, you know, the the business since I got in, only got more competitive, and so there's still enough. And and and and the other thing is the founders have learned how to play power. If there's ten people doing it, they know how to play them off of one another. They're they're very skilled at it. Jason Calacanis (00:26:36): Yeah. That's a that's a weird thing that happened is like the playbook because of podcasts, because of blog posts. I mean, David Friedberg (00:26:43): just Absolutely. Jason Calacanis (00:26:44): How to how to run a company And then, you know, how to, you know, negotiate with VCs is it's all been unpacked. Sachs, what are you seeing? You're a series a investor. You compete with the Sequoias, the benchmarks, heads up for these series a's? What are you seeing in the series a? And what do you take from this data being down 26% year over year? Probably actually means probably 50% down from the peak. What what are your thoughts? David Sacks (00:27:09): Well, yeah, the the venture capital market peaked in q 4 of 2021 in terms of both valuations and the amount of money that was being deployed. And it kept going down throughout all of 2022, and I think it bottomed out in q 1 of 2023, basically, in the last several months. And I think now the pace of deployment has sort of stabilized, and it's kind of stabilized at a pre pandemic level. So, you know, maybe at 2019 level. Now I think that probably masks some big differences by round. So like you're saying, series a rounds are more competitive. There's relatively more action there. I think the late stage rounds. Brad can speak to this. The capital there is Friedberg. I think considerably more. And those rounds are much hard to get. And the reason I think is because that when you have more operating history, then it's harder to raise around based on narrative. Whereas when you're at a very early stage, you can basically just raise money based on a dream. And a story. Jason Calacanis (00:28:13): The way I frame it to people is when I'm and part of this is my fault because I'm training people in our accelerators and pre accelerators. I tell them you're either selling promise or performance. And, you know, once you start having customers and numbers and retention, you know, someone like Saks is gonna be like, give me the data and they're gonna look at churn and say, yeah, this business is too much churn. It's leaky bucket, whatever. But when you're selling Promise Right. Speaker 6 (00:28:33): It's a Jason Calacanis (00:28:33): lot easier than selling performance. David Friedberg (00:28:35): I'll tell you guys a CEO that is a well known CEO public company now. He told me and I think, Gurley, I think you guys were investors. He said as as soon as we started having revenue, our valuation felt like it went down as soon as we started making profit, our valuation went down. Because at that point, you're, you know, you're judged on the quality of that stage of the business. Whereas before, you could paint a picture with a 1000 words about the different paths you might walk and everyone wants to believe the optimistic path will be walked. And so you can boost your valuation, boost investor interest. But once those numbers start to come through, it, it really changes the investor criteria for how they assess the value of the business. Speaker 6 (00:29:16): Well, a Bill Gurley (00:29:16): lot of people will state if if they have a product launch telling me they'll they'll tell you to raise money. Before you launch. Jason Calacanis (00:29:24): Yeah. Sell the promise of that launch. Yes. David Sacks (00:29:26): Old saying it's better to raise on the sizzle than on the steak. Jason Calacanis (00:29:30): Yeah. Unless the steak is pretty high grade. David Sacks (00:29:32): Yeah. Obviously, if the steak is great, Jason Calacanis (00:29:34): then, yes, that's the best time. Speaker 6 (00:29:36): But Did Bill Gurley (00:29:36): you take Brad Gerstner (00:29:36): that risk off the table? Yeah. David Sacks (00:29:38): But but just to recap, I think, where we are, I think the venture capital markets have stabilized for funding new companies. I think there's a mania going with AI, both in terms of the size of these rounds and the valuations. It's like 2021 for a lot of AI companies. We're not participating in that craziness. We are doing some c checks, I would say, and early stage AI companies. We're kind of calibrating the size of the check with the stage and amount of risk, and I think that's appropriate. Jason Calacanis (00:30:06): So you are going pre series a c putting in that's a 500 k, $1,000,000 check? David Sacks (00:30:12): See, it is what makes the most sense, I think, for AI startups because if you wait for a late around, then they're not being price based on fundamentals at Jason Calacanis (00:30:22): all. Yeah. So what what check price is that 500 k,000,000? David Sacks (00:30:26): We just did. Speaker 6 (00:30:26): We did David Sacks (00:30:27): one of a of $4,000,000 check where he led kind of a bigger seed round. Jason Calacanis (00:30:31): Got it. Fantastic. I love that those Brad Gerstner (00:30:33): are called seed rounds today. David Friedberg (00:30:34): I mean, it used to be 3 to Jason Calacanis (00:30:36): 5,000,000 washer series a, but, David Friedberg (00:30:37): yeah, sure. Jason Calacanis (00:30:38): Seed round, 3 to 5. David Friedberg (00:30:39): I still don't understand the term pre seed. David Sacks (00:30:41): So just to finish the thought. I think where we're at and, you know, Brad can can chime in on this is I think the venture capital market has stabilized for new companies, new fundraising. However, I think there's gonna be a 1 to 2 year period of distress for all these companies that race in the peak. Yep. 2020, 2021 and are now running out of money and they don't have enough revenue. They're not growing fast enough. And or their burn is too high. And all those companies are gonna be facing down rounds or restructurings or they're not gonna be able to raise. Jason Calacanis (00:31:11): Well, people are also marking their books now. We're starting to see the marking of David Sacks (00:31:14): the books. Bill Gurley (00:31:16): So you're gonna David Sacks (00:31:16): have probably a 1 to 2 year period of distress for all those bubble companies while we have a little bit of a resurgence for new companies. Jason Calacanis (00:31:25): I got another topic I'm gonna go to here, related, but Brad, I just wanted to let you chime in on the late stage there because you operate in the BC, Saraj. Yeah. Brad Gerstner (00:31:33): I think, and this is related to the topic. I suspect we're gonna positioned to, but listen. There is a lot of activity in venture today. Right? And we're very reflective to the stock market. People are really scared q3andq4of2022. Started in 2021, but q2 2022 was scary to people because public market valuations for growth companies were down over 50%. So we really saw, you know, IPO markets, venture, all all all start to slow down. Coming out of that, we've seen, you know, stock market within, you know, 10% of all time highs. We see, you know, this wave of AI occurring. What I would tell you is under 500,000,000, maybe under 600,000,000. Right? Series B and C rounds are as hot as I've ever seen them. And data infrastructure and AI and software, etcetera. So there is a lot of competition there. The later stage stuff, which, as you know, I call quasi public, So if a company is over a $1,000,000,000, right now you're you're very reflexive relative to what's happening in the public markets, We're starting to see activity. I just read Wiz raised more money. It's got $200,000,000 ARR raised at 10,000,000,000. So those markets are definitely times Jason Calacanis (00:32:49): revenue. Brad Gerstner (00:32:50): Yeah. We did not participate. Jason Calacanis (00:32:53): 50 times revenue. Brad Gerstner (00:32:55): You know, so there is definitely activity. I know a deal we got called on yesterday raising 2a half 1000000000@a100000000000. There is a lot of activity. However, Saks is right There is you know, remember, we had a 1000 unicorns at the end of 2021, and I've said a 100% of those are gonna do a down round. And we're still in the early stages of that reset to occur. There was some, you know, there's a report out this week that lots of people comment on Twitter where public markets were down 50% and private marks were down. I don't know. 5 to 10%. Like, that will all normalize. It's all gonna be down, you know, the same. So that's the only place I don't see activity under performant companies that were valued over a $1,000,000,000. Those are dead on arrival until you get to a market clearing price. And we're not there yet. Jason Calacanis (00:33:43): Okay. So the other big issue here is a lot of money was raised by VCs. Oh, you know, commonly known as dry powder in the industry, but there are some misconceptions about this dry powder. People are saying, oh my god. All this money's gonna come flowing into the ecosystem. It's gonna be the roaring twenties again. However, Bill, you did a little tweet room. What people don't realize is when we refer to Speaker 6 (00:34:09): dry powder at VC Firms, the Jason Calacanis (00:34:09): VCs do not have that $250,000,000,000 or whatever it is, quarter $1,000,000,000,000 sitting in their bank accounts. That money is sitting in another person's bank account, LPs, Harvard's Endowment, cowper, Sovereign Wealth Funds, etcetera. It has not been drawn down by the VCs yet. So Bill, why is this an important fact for people to understand and what are the dynamics that LPs are dealing with? Bill Gurley (00:34:38): Yeah. And and there's a ton of dynamics between the GPs at the venture capitalists and the LPs at those endowments that brat brat started to hit on. 1 of those, which is the marks aren't in the right place. And and so so the thing you just explained critical, Jason, which is you don't actually have the money. There's no there's no venture firm sitting around with, you know, all the money that they've got committed to their fund in a bank account. That's just ticking. Jason Calacanis (00:35:06): Why not? Why does that not actually occur? Because people would say, oh, you raised a 1,000,000,000 from these folks. They gave you the 1,000,000,000. Right? Why it's not taken? Bill Gurley (00:35:13): One of one of the the brilliant Realities of the way that a LP agreement works with a venture fund is they're not on the IRR clock until they actually pull the money down. So they Jason Calacanis (00:35:24): Explain what that means. Yeah. Bill Gurley (00:35:26): They charge fees based on the total committed amount, but they don't actually draw the money down and get gauged on the performance of their investment until they need it. And so a classic venture firm will do 5, 6 drawdowns over a 10 year period of a fund. And so they don't act they literally don't have the money. A couple of other things worth noting. So and some of that I didn't put in the tweet, but the marks aren't right. And every everyone kinda quietly knows that the aren't right? But there's actually no incentive to get to marks, right? Here here's Jason Calacanis (00:35:59): Explain what a mark is to folks. Bill Gurley (00:36:01): So private companies have an evaluation that's assessed either by the GP themselves in most cases, which is a bit of a conflict of interest, sometimes by your auditor, Ian wire, whoever's auditing your venture fund, of course, the techniques they have for assessing valuation are extremely crude because they're not market based. They're just, Jason Calacanis (00:36:22): you know They're not public companies. Bill Gurley (00:36:24): Yeah. And so there's there's actually not a way to know they haven't extremely complicated cap tables. The other thing is many LPs are actually bonus on the paper mark. And this is something that a lot of people don't realize, and so they don't have an incentive to dial around to the GPs and say, get your marks right because it's actually gonna reflect Speaker 6 (00:36:48): poorly on them if they were to roll Bill Gurley (00:36:49): those up. Both of them Jason Calacanis (00:36:51): are bo both of the LP and the GP are in a dance there. Hey. We know that Stripe is not worth a 100,000,000,000. Right now, it's worth 50 But if you mark it down, I don't get my bonus. I'm the person who's giving you money for your next fund. And so when we're assessing, hey. How much are we gonna give you for fund. We're gonna look at the performance of previous funds as an indicator. Bill Gurley (00:37:11): Pushed back on what you just said. I agree with what you just said except there the no one has the explicit conversation. It's it's an emerge it's an emergent behavior. Jason Calacanis (00:37:21): It's emergent. Yeah. Show me an incentive. I'll show you an outcome kind of situation. Bill Gurley (00:37:26): But there's no I've never heard of an LP like brow being GPS to get their marks right. Like, especially on the downside. Never heard that ever. Jason Calacanis (00:37:34): Those marks can be done by an audit. Like you said, they could be done by around a financing. Bill Gurley (00:37:40): And sometimes Jason Calacanis (00:37:41): you have secondary market, a weird secondary market. Bill Gurley (00:37:44): Secondary market can do it, and sometimes LPs have this weird situation where different venture firms are marketing companies at radically different prices. Jason Calacanis (00:37:52): Oh. Bill Gurley (00:37:53): Which creates some interesting dynamics as well. Jason Calacanis (00:37:55): Okay. So I did the Siri. I did the C round of Stripe where I'm Y Combinator. And I say, you know what? 50,000,000,000 is fine. We're gonna market at 50,000,000,000 because we we invested at 2,000,000 in Stripe. But then whoever did the you know, series g or whatever it's up to. We did the $100,000,000,000 mark. It's like, yeah, we'll mark it down to 90. But, you know, somebody calpers or Harvard has 2 has the same share class in 2 different funds at 2 different prices. So then you could really triangulate on reality. Bill Gurley (00:38:24): Another dynamic that, that makes it powdered less, less dry that, that I didn't mention in the tweet storm. Imagine you're on your first or second venture fund, or imagine you're a fund that used to just have a one fund, but they've expanded to 4 funds. Okay. Now, Imagine you don't have a lot of liquidity proof points on those funds. Do you really want to run out of money and go test whether or not you can raise your 3rd fund or your second fund, or do you kinda wanna wait and see if you can develop some track record so that could could you may be facing the imminent death of your firm if you run out too quickly and and go back to market and there is no market. Jason Calacanis (00:39:09): So I have a hun I have a $100,000,000 fund. It's my 3rd fund. Okay. What pace am I gonna do this? I'm gonna do it in 24 months or 18 months like maniacs were doing during the peak. Am I gonna take a 36 month approach or more traditional 3 year deployment? If I even if I take a 40 month deployment, hey. I got time to work out all these issues in the previous portfolio. Sachs, you've heard this sort of dynamic. What what are your thoughts on the dry powder issue? You yourself have a lot of dry powder. I understand. So do you think about it? David Sacks (00:39:36): We do have a lot of dry powder, and we're going really slow. I mean, there's no feeling that we have to rush out and deploy this capital. And one of the things that's interesting about the period we've been in that's been surprising to me is that art metrics actually haven't changed. I mean, the the that we're looking for in a software company haven't really changed. We look for a certain amount of ARR, certain growth rates, certain amount of net dollar retention, a certain CAC, a certain capital efficiency. That bar hasn't changed for us, but the number of companies meeting that bar has gone down considerably. Jason Calacanis (00:40:06): Because they have headwinds because customers are in austerity measures or companies are going out of business and saying, hey. Let me consolidate my SaaS tools. David Sacks (00:40:13): Enterprise buyers are sharpening their pencils. Speaker 6 (00:40:15): Mhmm. David Sacks (00:40:15): They are trying to consolidate vendors. There's a lot of headwinds in the buying cycle right now. Yeah. And it's a little bit like I don't know if you remember in the dotcom crash 20 something years ago. Jason Calacanis (00:40:26): Oh, I remember it. David Sacks (00:40:28): Yeah. So back in 99, 2000, the conventional wisdom was that the company you wanted to be in was Yahoo because Yahoo was profitable. And when all these startups went out of business, Yahoo would be the way that you could own a piece of the future of the internet, but you wouldn't have to take all the startup risk. And then it turned out that all of Yahoo's revenues went away, because their revenues were coming from banner advertisements bought by startups, which were funded by VC dollars. So when you had the whole dotcom crash, Yahoo's business Friedberg, Yep. So then Yahoo lost whatever it was. Jason Calacanis (00:41:02): It turned out a lot of people weren't wearing swim trunks. It was. Yeah. David Sacks (00:41:06): So so Yahoo's was actually highly correlated with start up funding. Speaker 6 (00:41:10): Mhmm. David Sacks (00:41:10): And I think there's been an aspect of that with a lot of these companies where you would think that they're pretty insulated from Speaker 6 (00:41:17): the business cycle, even like, especially David Sacks (00:41:17): the enterprise software companies. There's a lot of software companies that were selling to other startups, that was pretty obvious they're gonna be impacted. But even the ones selling to enterprise companies have been affected in subtle ways, And, there just aren't that many startups right now hitting that same bar that they were hitting just a couple of years ago. Frederick, your thoughts on Jason Calacanis (00:41:43): this LP GP dynamics and and dry powder? I mean, I think David Friedberg (00:41:51): I mean, one aspect on Speaker 6 (00:41:52): the same front of, VCs being somewhat David Friedberg (00:41:52): reticent to deploy more capital it's flowing through to the LP space, and Girly can probably pine on this or Sac can probably pine on this too. But and all of you guys obviously could, but it's been a parent in the last year that LPs are wondering what do they have? What are these portfolios ultimately really gonna be worth? What's the actual cash distributions? And I think there's these new rules, right, early, where you gotta distribute 5% of your assets each year to the institution that you're meant Jason Calacanis (00:42:28): to represent. That you're endowment, you're obligated, to not just grow your endowment. Bill Gurley (00:42:34): Both either from the board of the, like, the edema of the board of trustees of the university, or I think there was a tax provision put in that if you're not distributing 5%, then you're exposed to tax on the returns. And so there's a there's a unquestionable potential issue with LPs around their own liquidity. So they've all followed the Dave Swenson model where they've all got 50% or even more any illiquid assets. You move into a cyclical decline where the number of IPOs and liquidity events, both for VCs and PE. Remember PEs way bigger than VCs. Jason Calacanis (00:43:15): Private equity. Bill Gurley (00:43:16): Aren't coming, and then the draw downs keep coming. And so you have to meet the draw downs. You're not getting any liquidity. You're constituent needs 5% liquidity. Jason Calacanis (00:43:28): And now your cash crunch. Bill Gurley (00:43:30): Now you, you have cash crunch as an LP. And I think GPs are aware of this issue. So, you know, do you wanna provokes that or not? David Friedberg (00:43:39): Right. So maybe maybe you Bill Gurley (00:43:40): are just quick. You run early. Are you running late? You don't wanna be in the middle. David Friedberg (00:43:44): And so I'll I'll just say, like, anecdotally, it it seems LPs are more reticent. I've heard several folks talk about how they're reducing commitments by 50%, two thirds, or in some cases, a 100%. Particularly after the the mad rush for capital over the last couple of years or capital commitments, I would say, for the last couple of years. And so the downstream effect of that ultimately as the current funds get deployed, there are fewer new funds and less new capital being committed from these LPs into new funds and, you know, fast forward 2 or 3 years, and there's gonna be less capital available. And so keeps the bar high. So while there's, you know and so the bar, I think, is only gonna get higher over the next couple of years. As that capital cycle moves its way through the system. Bill Gurley (00:44:34): It's probably worth explaining what Friedberg was talking about in terms of a commitment. So you may have a let's just say University X has committed 25,000,000 to funds 3 through 5 for a venture fund. Z. And now they're saying, in the next one, we're gonna be at 10 instead of 25. David Friedberg (00:44:57): When they say they're making that commitment, that capital gets deployed by the venture investor. Over the next, on average, call it 5 years, So the reduction in a commitment this year means that there's less capital to invest over the next 3 to 5 years And so that gets played out as we fast forward. We're, you know, we're still sitting on funds for the last couple of years as those funds get invested the new funds are gonna be smaller. There's gonna be fewer of them. Which And that's when the market gets much tighter as in the next couple Speaker 6 (00:45:26): of years. Jason Calacanis (00:45:26): You know, Brad, this seems like the greatest setup ever Feels like the set up last year buying equities when everybody was scared. If everybody is tightening their belts, if VC funds are not going to deploy, this feels like the time to be deploying. So maybe you could talk a little bit about the austerity measures coming or just belt tightening or some people may be getting out of the venture business who shouldn't have been in it to begin with. All of this seems like a great setup for more discipline and more disciplined founders. If the VCs have to be disciplined, doesn't that trickle down to the portfolio companies? Brad Gerstner (00:46:00): 100%. But it and while this might happen, While this might happen, I'm gonna take the other side. I don't think that's what the lived experiences of most VCs in Silicon Valley today. On series a, series b, series c is certainly not in the area. We're competing. We're seeing 4 or 5, $600,000,000 deal get done on 0 revenue, $23,000,000 in revenue. And so let me just throw out perhaps an alternative view as to why this might look a little different than the world of austerity that we saw in 2002, 2003, 2009,011. The first is, right, the stock market is near an all time high. And we know that, you know, the venture markets are reflective to the stock market. We talked about that. The second reason, which I think is interesting is most firms on average are a lot bigger. Okay? That creates 2 issues. We have a situation where younger partners and principals who all did deals that were overvalued over the last few years, They wanna put some points on the board in a repriced deal because they have to have some winners. So you have this principal agent problem. The people who used to check them were the senior partners, right, the the investment committee. But now they have a lot of mouths to feed So when you put money to work, you pull down more fee. And so, you know, these funds now, I mean, if you're Tiger or some of these big funds, you have giant cost basis that you've created because of the the size of the firm that you created. The third is the nature of LPs. And Bill mentioned, you know, Dave Swenson. In 2002, MIT Yale, Harvard, they would call, you know, who were the early backers of Enter They would call these venture guys up and say, listen. We're hurting. There were a lot of markdowns. We need to slow down the pace of deployment. Right? And so it it they were a factor. LP said slow it down. I'm not hearing that out of LPs today. Okay? And I think one of these change. Brad Gerstner (00:47:59): I certainly am hearing it out of traditional LPs, some family offices, some endowments, but pensions, sovereign wealth funds, etcetera, who now represent a much bigger percentage of the total capital base of venture They have money coming out of the ground every day that they need to deploy like they did in private equity. And so, again, I'm not saying this for certain. And, certainly, there are more discerning sovereign wealth funds than others who are saying don't speed up the pace of deployment, but I'm wondering that nature, that change in the nature of the LP base is also contributing to this, you know, as a sax called AI mania, Jason Calacanis (00:48:39): Yeah. I mean, we see it in Hollywood. Some new, actors come in. They wanna build a brand. We saw the Russians do it. We saw the Japanese do it. You've seen China do it. People come in, new entrance at the table. They get splashy, cashy. They wanna place a lot of bets. They wanna make a name so I pulled the brand. So that's an interesting counterpoint. Our entire business, of course, is based on exits. The highest form of exit, I guess, is an IPO. An overpriced acquisition would be the 2nd and it was a secondary market for shares as a distant third. Looks like the IPO window might be cracking open a bit, and, some people are being forced. The guns to the head. Arm owned by SoftBank, Masayoshi san, looking to raise 10,000,000,000 at a 50, 60, 70,000,000,000 dollar valuation could be the largest IPO of the year. Instacart looking at a $12,000,000,000, valuation. Reddit kinda went dark. They had a couple of problems with their community. But they were in line. Stripe, obviously, in line. Klaviyo's got a $5,000,000,000 evaluation. And then we saw a couple of what I'll say are nontraditional companies going public, something called SharkNinja. I saw in public, we had a little conversation about this, Brad Kershner. They have a market cap of 4,300,000,000. They had a pop of 40%. Java, a Greek food chain, Hoopa. They went public and have a market cap of $5,000,000,000 surfer, a company I had passed on investing in what was intrigued by. They do Pilatus, shuttles between places on the West Coast here, little short runs. They did a direct listing in July. Marked a cap of 85,000,000 didn't go well. Bill Gurley is, the IPO window opening, or are people kind of on the ledge who have no choice, but to jump and hope for the best. Bill Gurley (00:50:27): One thing we didn't probably spend enough time on in the last topic, which I'll just hit on briefly is the complexity of those unicorns. So Brad mentioned, I I saw a deck that said there were more, private unicorns than public tech companies over a $1,000,000,000 at one point in time. Which Jason Calacanis (00:50:45): is shocking, Bill Gurley (00:50:46): but the those because those companies grew up in the 99, 22, 21 time frame where you could raise money at Seth evaluation. Their CAP charts are very complex and rigid. They have different licked preferences at different places And, and, and they've got board members who all have different marks and are all very worried about whether this thing Speaker 6 (00:51:07): can Bill Gurley (00:51:07): get to a certain place or not. And so it's very difficult to come in and do another private round in those situations. You might have to you you might have to put the return in a guaranteed take dividend to IPO or some complex derivative. And a lot of people, and I think Brad would agree with this. A lot of people just say, they opt out and say, no, this is too hard. I'm not gonna go in there and negotiate with 5 different constituencies on how to do is you can't just do a simple investment because of that. Jason Calacanis (00:51:37): Okay. So it's gotten too complex, which then if the buyers of those shares do not wanna be involved in that crazy. Okay. Is Stripe worth or just pick Stripe as an example, 50,000,000,000 or a 100,000,000,000, and the last investors are at a 100. YC in a 2,000,000 Yeah. Sure. It may be a Bill Gurley (00:51:54): bad example just because their total lift prep stack may still be a fraction of their market cap for a lot of these unicorns, the lift prep stack can be very close to their market cap for their today's valuation, and that's what Jason Calacanis (00:52:07): creates So you have Bill Gurley (00:52:08): a bill in from Jason Calacanis (00:52:10): You you got a $1,000,000,000 in investment in the company in liquidation, money that has to come out to pay those investors, but the company's only worth 2,000,000,000 or a 1,000,000,000. And now it's yeah. Bill Gurley (00:52:19): When you get to that place, sometimes going public is just the easiest way to clean it all up. Jason Calacanis (00:52:24): And because everybody converts to common. And we just the company starts trading and reality is reality. It's kinda like taking medicine. Bill Gurley (00:52:32): Yeah. And and I think that happened. One one good example was Square at one point had done a derivative financing on top that was somewhat problematic, and they just felt like they had to get out. And they did, and it cleaned up the CAP Chamath. And one thing I've been waiting on, we'll see if it happens, but because of hyper competition and investing in 99, 2020, 2021. There was a term removed from most term sheets it gave. Investor is the right to protect their leak prep on IPO. That's gone in most of Jason Calacanis (00:53:05): these cases. So you could convert Bill Gurley (00:53:05): leak prep under which for a founder or an early stage angel investor would be a huge win. Jason Calacanis (00:53:15): Got it. Bill Gurley (00:53:15): Whereas if you sold a company in M and A, the PreF would play. Does that make sense? Jason Calacanis (00:53:20): Yes. So the last investor comes in, they're getting a multiple of their money back accept in an IPO. Right. And I suspect that happens, you know, yeah. Bill Gurley (00:53:30): And I suspect most of those late stage investors keep assume that their investment has a debt like floor on Lake Press. And if this were to start to happen or recap, which can also be done. The self in self inflicted recaps. I have seen many times just to get past the structural complexity. Either one of those things could wipe out that leg prep. Jason Calacanis (00:53:53): So net net, girly, more IPOs are gonna happen. Bill Gurley (00:53:57): I think you Jason Calacanis (00:53:57): will see, right, there Bill Gurley (00:53:58): there's two things that I think that cleaning up complexity is a great reason for the public market. And Brad already said, we've seen a massive recovery in in software stocks. Like, the marks are better than they were 2 years ago. Jason Calacanis (00:54:16): Brad or Saks, just m and a wise. We've seen Lina Khan. We've discussed it many times. Seems to be saying all business equals bad. Any merger equals that. She's gonna, you know, attempt to throw cold water on any merger that's happening. So m and a seems to be being taken off the plate by not just Lina Khan, but also the EU's is seems to be turning the screws. So if we don't have an M and A market, then that means there's only an IPO mark. Brad Gerstner (00:54:46): Correct. I mean, that's just another one of the reasons that is pressuring these companies. These companies need to raise capital. So just to double click on what Bill said and put some numbers around it, right, because We read a lot of stats about how many IPOs there were. So I had the team pull some figures. 480 IPOs, US IPOs in 2020. A 1035, so a huge bubble in 21, a 181 in 22, and a 123. Okay. But I think that overstates, right, because we had a lot of specs and crappy IPOs. So it really overstates the quality IPOs. So, you know, we're one of the major buyers in tech IPOs. So I just went to the team and said, how many IPOs were we tracking and did we consider participating in during these years. So that was 46 in 2020, a100 in 2021, 3 in 2022 and 0 year to date in 2023. Okay? Don't Jason Calacanis (00:55:45): don't wanna be in the Greek food, that's capital. Brad Gerstner (00:55:48): But what I would say is I just returned from Deer Valley this week where Morgan Stanley's putting on a conference talking to their big potential IPO buyers. We are now queued up. As you and I, we had this tweet exchange, Jason, this week, and I said, you know, in that exchange, the world's normalized fear of COVID's past, hyperinflations, past, etcetera. 1st class IPOs are coming, and a bunch of down round IPOs are coming. So let me just explain really quickly on that. Right? You mentioned Instacart. Right? Super high quality company. I think its last private round was 50 or 60,000,000,000 in the bubble, and now it's rumored to be going public at somewhere around $10,000,000,000. Okay? So that represent the reset that will have to happen. And as Bill said, if you were a investor in that last round of Instacart and you were buying preferred shares and thought you were protected, that preference is washed. Right? So you're gonna be down 50, 60, 70% on those preferred shares because you're gonna be converted into common in that IPO. It's the right thing for the company to do. It's the right thing for the investors to do. It cleans up the cap table. So that is an example of, you know, the down round IPOs of high quality companies that you're gonna see come public. Then you're gonna have folks like Arm, like ByteDance. Databricks would be another one of these. I think that, you know, sneak that would be more in that Instacart camp, you know, like, there will be some discount relative perhaps to their fully diluted last rounds valuation, but these make no mistake about our high quality companies that will lubricate and altimeter will compete for those IPOs because these bankers are hell bent on pricing these IPOs at a discount to fair value. They need them to work. They need to bring buyers back into the IPO market because these companies need liquidity. Jason Calacanis (00:57:35): So suddenly the banks need to get wins for the people buying these shares. Brad Gerstner (00:57:41): As opposed Jason Calacanis (00:57:42): to in the past, they were like, yeah. We're just selling a security at the market rate, whatever that famous a famous monologue from what was the movie with the was that Jeremy Irrance who gives that monologue? We're selling securities to informed buyers, and that's it. It was a pretty dark scene. Brad Gerstner (00:58:01): So it won't be a light switch, Jason, but I do think Yeah. David Friedberg (00:58:03): Margin call. Jason Calacanis (00:58:04): Margin call. Thank you. David Friedberg (00:58:05): It was Jeremy Irris. Brad Gerstner (00:58:07): Don't think it'll look like a light switch, but it will be I think we're gonna see 5, 6, 7 IPOs, good size IPOs in q 4. We'll probably see closer to 10 in q 1, and then it will start opening up in the back half of next year. In part, because boards of directors will begin to realize, you know what? We have to go public. If it's down round who cares, it's acceptable, and this is really healthy. We need these companies. And by the way, I'm in the bill, Gurley camp. You should not stay private forever. You should get your company. If you have a 100 or 200,000,000 of revenue, Get your company public, innovate, and grow in the public markets with the discipline and cadence of the public markets. And if it's if it's a you should expect the price is lower. Because the world was out of their mind in 2021 and multiples of reset. Jason Calacanis (00:58:55): Saks, you shared a news story with me just about some of the incredible returns in the golden hour of Venture Capitol, Washington University, Duke university. The some of these endowments just exploded in value. Yeah. David Sacks (00:59:09): I remember when this article came out. It was September 29 2021, less than 2 years ago. Yeah. And we were all feeling really good Yep. About our industry. Yeah. But as it turns out, the whole thing was inflated by all the free money that the Fed had airdrop. So, you know, the public markets were really frothy. It was basically very bubbly, especially for growth stocks. You had all these new IPOs and specs and so forth, and they were super bubbly. And the result was that the returns both realized returns and on paper for these endowments were massive. So if you think about the LP, the LP community if they're making commitments in 2021, the way they do that is they look at the total value of their endowments, and then they allocate a certain percentage by asset class. So they'll allocate a certain percentage to public market, certain percentage to real estate, private equity, and then VC. So if the overall value of the endowment is really big, then that percentage that goes to VC is gonna be really big too. And then what happened is you had this huge correction over the next couple of years. And so one of the things we heard from the LP community last year is a problem they called the denominator effect Jason Calacanis (01:00:24): where Explain. Yep. David Sacks (01:00:26): Well, the value of their portfolios had gone down a lot because the public markets were down. Well, is it something like Jason Calacanis (01:00:33): 50% in some cases. Yeah. David Sacks (01:00:35): For grow stocks and, like, 15, 20% for the entire market. Speaker 6 (01:00:38): Right. David Sacks (01:00:38): So the value of the portfolio was down, but the venture capital part of that was not down, both because of the the lag in getting fresh marks. And then also because they had already made commitments to new VC funds at the peak of the market. So all of a sudden, the percentage of their portfolio that was VC related roughly doubled. And so that's why all of a sudden, the LP commitments have dried up is because they're over allocated to VC. Yeah. Now Alright. As the public markets have come back this year, then that problem mitigates to some degree. But Yes. I think it's still out there, and I think this is why you're seeing certainly domestic LPs really slowed their allocations to venture capitals. They still have the denominator problem. Now I think there's less of an issue overseas. I think, Jake, how you observe that the the 4 seasons of the the the bar at the Dubai. Jason Calacanis (01:01:33): Bobby Bar looked like a rosewood to Brad and see when we were there. I literally got stopped four times from the elevator to the front door. I am not kidding. 4 people stop me. That's 2 more than would stop me at the Rosewood going to the front door. It was You should Bill Gurley (01:01:49): recognize that as a hyper tractor for where available money was Yes. Relative to the US dollars and whether they were available or not. David Sacks (01:02:00): Yeah. I think we're in for a period here of just continued to stress and and pain even though the market is sort of normalized or stabilized now. Again, I just think we've been in a huge software recession for the last year. Yeah. I think that it's been masked by the fact that the rest of the economy seems to be okay, but this is the worst software recession we've been in, I think, since the dot com crash. I mean, the buyers have been laying off employees by the thousands. And since software is bought on a per seat basis, Yep. The the market has really condensed. We had one startup that was selling to Twitter, and they got a renewal. And the the I think they're contracts. Jason Calacanis (01:02:39): 80% off. David Sacks (01:02:40): 80% off because he wants laid off 8% of the employees. Jason Calacanis (01:02:43): Yeah. And I told him that they before negotiating the last 20%, which you could negotiate 50% off that. David Sacks (01:02:48): I told him they did a great job. He's getting that 20% because Elon's guessing everything. Speaker 6 (01:02:53): Yeah. I David Sacks (01:02:53): was, like, really impressed. They were able to renew at 20% of last year's value. Jason Calacanis (01:02:57): You know what? We we had a bender. We we had a bender, and this bender went on for far too long. And you know what? If you go out, you know, 2, 3 nights in a row until 4 or 5 in the morning. That next week is gonna be painful and suffering. That's what the industry is going through. It's just gonna take a lot of cold plunges and infrared and pickle ball and, you know, sagas to to feel good again in this industry. Bill Gurley (01:03:19): I would like in in retrospect that I think super interesting about the venture capital cycle. 1, I think it's inherently cyclical, and it's always gonna be that way unless we fundamentally change the structure of the industry, because it just invites competition, and there's no barriers to entry. But I went and talked to some LPs that have been in the business for a very long period of time, and a vast majority of the reason or outperforms other asset classes has to do with these tiny windows when you have a super probably market. And if you don't if you aren't around for that part, you know, if you strip those years out of a 40 year assessment, is actually not that interesting in asset class, which highlights the need for venture funds to get liquidity at the peak. Yes. Right when we are at the peak is when people get the most brazen, the most confident, and they start talking about how we're gonna hold forever. And so you had venture firms with the biggest positions they've ever had in their entire life go over the waterfall and and basically evaporate what could have been returned. Jason Calacanis (01:04:31): Yeah. I mean, diamond diamond heads can come back and invite you. And you've said famously, you can't what was the the line you had you can't eat IRR? Well, you can't. Bill Gurley (01:04:39): Yeah. I don't think I said it, but it's been set. Jason Calacanis (01:04:41): Yeah. Yeah. Since we're on our movie vendor here, For those of you who haven't seen margin call, just one of the great David Friedberg (01:04:48): scenes ever. The whole scene, by the way, is, like, the best scene I think of modern finance films. So look at this murder is right. Speaker 8 (01:04:57): Are we selling this to? Speaker 9 (01:04:58): Same people we've been selling it to for the last 2 years and whoever else by it. Speaker 8 (01:05:03): But, John, if you do this, you will kill the market for years. It's over. And you're selling something that you know has no value. Speaker 9 (01:05:13): We are selling to willing buyers of the current fair market eyes David Sacks (01:05:19): so that we may survive. I am. Oh, man. Jason Calacanis (01:05:26): You can rationalize a lot on Wall Street, man. But Yeah. But to the point that David Sacks (01:05:30): But what what Bill's saying is that the opposite took place, which is VC's drank the Kool Aid and didn't sell when they were at the peak of the market. Bill Gurley (01:05:39): They also got caught up in a competition of trying to to, appeal to the founder community is saying, Hey, we're in it forever. We're gonna hold forever. We're your best friend forever. David Friedberg (01:05:50): But, Bill, there there was also this element that drove that strategic rationale, this data set which is the best performers in tech generated most of the value after they went public. I mean, you know, there's a $1,000,000,000,000 of market value generated in Nvidia, in Apple, in Google, in Amazon, all over the many years post going public. And, you know, if you read Sequoia's notes when they kind of made the transition that they made, they said, we don't wanna, you know, walk away from the power law that the power law continues to accumulate and accrue even in the public markets, and we wanna continue to participate in that because there's another 100 x upside coming from here in the ones that we select, we wanna stay with, not necessarily we weren't gonna stay in all of them. Have to be discharged. There are some that we believe are still a 100 x upside from here. And just because there's an IPO doesn't mean that we wanna exit the position that there's now more capital available to them, more public currency they can use to do transactions to hire, etcetera. And we wanna participate in that value creation. Jason Calacanis (01:06:54): And the last double could be the biggest, right, though? Bill Gurley (01:06:56): I think the total number of companies that meet that criteria in the history of the venture industry is like 10 or 15. And, and you name many of them. And the problem is that the rhetoric becomes common narrative and becomes part of the ethos of the firm. And people wanna apply it to every single company. David Friedberg (01:07:15): To everything. Jason Calacanis (01:07:16): That's right. David Friedberg (01:07:17): Right. Totally. Bill Gurley (01:07:17): And that's not true. I mean, I I I Jason Calacanis (01:07:20): don't wanna get too specific here, but you had a comp you had, you know, you had do have some, let's say, seasoned vets yourself included bill who, when given the opportunity to get liquidity, on an incredible investment will do so. Fred Wilson sold. I think of all of Coinbase when it goes public. He he just clears the position when things go public. That's been his philosophy, kind of the antithesis of what Sukoy and Rudolph are are doing with some of their holdings. And then we've seen, we work has, an existential crisis. They don't think this might be a viable con concern anymore, but famously benchmark was able to sell shares at a very high valuation at some point and lock in an incredible return. Yeah? Bill Gurley (01:08:04): Yeah. Jason Calacanis (01:08:05): Okay. There it is, folks. That's a yes. Okay. So David Friedberg (01:08:11): I missed a question, Jason Calacanis (01:08:12): though, about getting older. Well, let me David Friedberg (01:08:14): ask you a question. Speaker 6 (01:08:16): Let me Jason Calacanis (01:08:17): ask you a question about how to make older or wiser. David Friedberg (01:08:19): Well, Saks. Saks. Jason Calacanis (01:08:19): Saks. Like, your your wants to be the world. 17th the best moderator to go. David Friedberg (01:08:23): Sex, you you have an investment in SpaceX. Right? I mean, there's been a lot of secondary action in SpaceX. Why would you not sell SpaceX at this valuation today? Or would you Jason Calacanis (01:08:31): maybe did he? David Friedberg (01:08:32): As you kinda think about this. Yeah. David Sacks (01:08:33): I think we're gonna wait till the company IPOs. I think that would be our default. David Friedberg (01:08:38): When it goes public sex, do you then think what's the upside from here, or do you think my job is done David Sacks (01:08:44): as the right job is done? Yeah. I think my job is done. I think what we would do distribute the shares, and then each LP can make their own decision That's okay. About whether they wanna hold it or not. David Friedberg (01:08:53): And you have the key insights that you wanna do with your Yeah. David Sacks (01:08:56): Yeah. One of the nice things about distributions is that nobody has to sell. So everyone can make their own decision about whether to hold or not. Yeah. Once the company is public and the public has all the information through disclosures, the odds that I know something special that a seasoned public market investor doesn't. That's probably pretty low. Jason Calacanis (01:09:18): I mean, the great Paradox of what we all do, and, Brad, you have both a public and a private portfolio. I started trading public market equities to get better at my private behavior bill. You've done that forever, is public market. You can't trade on inside information. Private companies. That's all you're trading on. Maybe you could speak to a little bit about being what do they call when you do both crossover investors? Does that make you a crossover investor? Is that proper term? Brad Gerstner (01:09:47): Well, Bill Girley is the original crossover investor. He's been trading public stocks since, you know, Speaker 6 (01:09:51): and and Brad Gerstner (01:09:52): Well, he'd been doing that first. Yeah. Researching him. You know, but, you know, the fact of the matter as has Warren Buffett and, you know, who would laugh at the idea of a crossover fund. He's been running 1 of the world's largest public and private portfolios forever. He would say I invest in great companies that are mispriced. There are moments in the market cycle where late stage venture is mispriced to the downside. And there are moments in the cycle where the public markets are mispriced to the downside. What we saw in 2021 is the priv private markets were crazily overvalued. In 2022, we had this massive correction in the public markets. We believed that they overshot in part. We believe that because we didn't think we're gonna have hyperinflation forever, etcetera. And so you and I invested in, you know, Meta and a lot of other things that were on their ass, You've gotta buy in the public market when there's blood in the streets, right, as as war as buffet says buy when there's blood in the streets and sell when there's trumpets in the air, And, you know, there are definitely blood in the streets when you saw things down 60, 70, 80, 90%. Jason Calacanis (01:10:58): Is it trumpets now? Because feel like trumpets do you now, or does it feel like trumpets next quarter or the quarter after? Brad Gerstner (01:11:04): If you look at public people Jason Calacanis (01:11:05): are polishing those trumpets right now. Brad Gerstner (01:11:07): Yeah. I mean, a lot of it obviously depends on your view on what's gonna happen in the economy, fundamentally, and I'm happy to shift to that. But what I would say is this, Remember the chart that I've showed many time about software internet valuations. We were, you know, 70% above normal, and then we were 30 sent below normal. And now we're closer, to the trailing 10 year average of internet and software evaluations. There are always outliers on both sides of this. But I would say a lot of the positive arbitrage that we saw in 22 has been squeezed out of the public markets, and we're close to fair value. So now if you wanna generate alpha, This is gonna be about picking individual winners versus individual losers. This is going to, you know, like like the beta trade on on global macro, I think has largely played out, you know, the catch up back to kind of fair value. And now I think there's a debate between kind of hard landing, soft landing, we gonna have a reacceleration inflation or not have a reacceleration? Where you come down on these major issues, I think dictates whether or not you know, now I Jason Calacanis (01:12:09): could pivot point for us now. I mean Wait. David Sacks (01:12:12): Can can I correct something you said, Jake? Jason Calacanis (01:12:14): Yeah, please. David Sacks (01:12:14): Alright. So you said that public markets inside information isn't allowed. Whereas private markets, it's all inside information. I think that could give viewers a misleading impression of what we do as VC Jason Calacanis (01:12:27): Okay. David Sacks (01:12:28): The way that around typically comes together, it's not like we get tipped off by some insider at the company, in some, you know, nefarious way. What happens is that the company chooses to engage with us or a select number of firms in a process and then gives us their metrics and, you know, it gives us the business plan. It gives us the forecast. And it's all done in a very above board way. It's not like we're being tipped. However, the part of it that, I guess, is true is that a private company does not necessarily engage with everyone in the world David Friedberg (01:13:04): Yes. They can put on the website Jason Calacanis (01:13:05): a quarterly report and say, here's what our revenue and our costs were, and here's our earnings. Although some private companies do start that process, like David Sacks (01:13:13): By and large. Jason Calacanis (01:13:14): Before they're by and large, they do. By and David Sacks (01:13:16): large, they're selective about who they want to be on their cap table, and that's the big difference. Jason Calacanis (01:13:20): And who they wanna share with him? David Sacks (01:13:22): Private. A public company doesn't care who's on his cap table. It doesn't really know who's got you know, Apple doesn't know every shareholder and who's got accounts at E*TRADE or whatever Charles Schwab. I mean, they may care who their biggest shareholders but they don't care who the average shareholder is, whereas a private company really does care. And part of the reason why they care is because these startups are highly risky. And they want to have investors who have a track record of behavior where they don't have to worry about being sued. Jason Calacanis (01:13:53): Lose Every David Sacks (01:13:54): time something doesn't work. Out, which is most of the time. So I think there's good reasons why startups want to control who their investors are. By the way, there's also the issue of value add. Right? I mean, other things being equal, founders and start ups would rather have investors who can help them as opposed to simply, you know, John Q public. Jason Calacanis (01:14:14): Yeah. I mean, you mentioned both scenarios. You don't want somebody who's in neophyte, who's gonna cause chaos, and be upset when revenue goes down or things are swinging up and down. And, yeah, if you're public, yeah, buy the share if you want or sell the share if you want, it's a marketplace. David Friedberg (01:14:28): Sorry. Just pull up this this image I I just posted. This is from, you know, you guys know Gokul Rajaraman? Gokul is a great human. We used to work together at Google. Then he worked with Jack at Square. He's at DoorDash today. And he was the leader at Facebook after Google, but he did this tweet last month. Any tech venture investor who pairs their funds return to the S and P as being naive or disingenuous. The correct index to compare to is the Q, Q, Q, you know, the Nasdaq composite, and it's performance has been mind boggling. And as you can see here, over a 20 year investment period, if you basically just buy the top 10 public tech stocks and at the end of each year rebalance to the top 10 at the end of the year. Your multiple over that period of time is 24x over Jason Calacanis (01:15:24): 10, 20 years. David Friedberg (01:15:25): Yeah. And over a 10 David Sacks (01:15:26): year period There's there's quite a bit of hindsight bias here. Saying, well, Speaker 6 (01:15:29): when you look at David Sacks (01:15:30): the top 10, right, it's like Brad Gerstner (01:15:31): Or how the hell do you determine? You know, Jason Calacanis (01:15:34): why not 10 20? David Sacks (01:15:35): Why not top 100? I mean, are you willing to say that for the next 10 years that you should only buy the top 10? What if over the next 10 years, it's more of the field versus the top you know, the next one. Yeah. I think comparing VC as an asset class to the Nasdaq makes a lot of sense. Yes. I think that's fair. David Friedberg (01:15:54): Yeah. And that's that's the second column from the right, which is basically, Jason Calacanis (01:15:59): you know, you David Friedberg (01:16:00): would, yeah, 5.2x over 10 years. So if you're not beating 5.2x, which is a totally liquid investment, if you just bought the qqqq index, Jason Calacanis (01:16:09): what this really shows is Apple Google, Facebook, and Amazon have had an massive run up. David Friedberg (01:16:17): Well, that's not that's not true. That's that that's actually not true, Jacob, because if you look at just the static, it doesn't, you know, outperform. It's the rebalance that outperforms, which is whoever's winning in the market meaning whoever's gaining market value each year is you then, you know, double down your dollars into for next year. And that's changed over a 20 year cycle, over a 10 year cycle, and it really starts to play out over time. But I mean, yeah, if you just look at the Q, Q, that's the benchmark as an investor. It's a private investor And, you know, Gokul's comment in his, in his tweet is that, you know, if they can return, call it, 7 to 8 x over 10 years, or in this case, 5 x over 10 years, you could argue that a venture fund needs to return a significant premium, probably a 25, 30 percent premiums due to the illiquidity and the the riskiness of the investment cycle there. Whereas the Q, Q, Q, you can just sell anytime you want. So, you know, call it a, you know, you know, you need to kind of be demonstrating a 30% premium to the, 5.2 x tenure. Which is, that's 6a half 7x called 7x cash on cash. David Sacks (01:17:17): I mean, according to this, the venture asset class is super overfunded. So why why is that then? David Friedberg (01:17:24): Gurly, give a point of view? Bill Gurley (01:17:26): Yeah. I mean, it would be completely speculative, but I I do think If you look at the structure of endowments, you know, you've you've had a few people really leaning the way in terms of a playbook with Swenson you know, Dave Swenson, who've passed away recently, but Jason Calacanis (01:17:43): but Dave Swenson. He he he ran yells and down and he's considering Bill Gurley (01:17:49): And I think, you know, the vast majority of people decided they were gonna follow that playbook, which had a you know, oversized investment in illiquid assets, PV, venture, real estate, commodities, those kind of things. And I think it led to just, a massive, like, and, and these things take forever to figure out if they're right or not. If your portfolio is over 50 percent illiquid, like who knows what's right and what's wrong, you could do a re you know, you could There were years where Yale was printing, like, 27% a year. And then in in one reset, no nine, wiped out, you know, a a ton of that. And so it's super hard to know, but I, but I do think that philosophy that came broadly adopted Jason Calacanis (01:18:40): Yeah. Well, David Sacks (01:18:40): look at, can you pull up this chart real quick? This is a chart from Statista that is value of venture capital investment in the US from 2006 to 2022. And what you see is there's there's basically a few different levels before 2014 call it, the industry was basically a $50,000,000,000 of your industry in terms of deployments. Then you had a run up where for several years, it was around a 100,000,000,000. And then in the pre pandemic years, 2018, 1920 was around a 150,000,000,000 a year of deployment, And then it went totally nuts in 2021. It was 350,000,000,000. Started to come down in 2022, to about 250,000,000,000. I think where we are right now is kind of at that 2019 level of about a 150,000,000,000 a year. The question is, like, what it should be? I mean, should this be a 150,000,000,000 a year industry? Should this be a 100,000,000,000 a year industry? Should this be a $50,000,000,000 a year industry. Jason Calacanis (01:19:40): Yeah. It sounds like a 100 to a 150 would would have been the steady state. And, Bill, some portion of this is stay private longer having an impact where those last couple of rounds were the big, huge juicy rounds, And if people had gone public in years 7, 8, 9, like Microsoft, Google not Google, but Microsoft did not let me Google it. What year was Google when it went out? 8? You know, going out a little bit earlier would have chopped off some percentage of this growing. Bill Gurley (01:20:10): Yeah. And I I I do think one of the most interesting things to watch is gonna be how these a 1000 unicorns private unicorns play out, because not only do they have the cap structure problem, but they lived and grew up in a day and age where they were told growth at all costs. And it it's super hard culturally. To go from that type of execution to the principal type execution you guys have been promoting. Over the past several months, it's just hard. It's not impossible, but it's very, very Jason Calacanis (01:20:41): Google went public in year 6. Brad Gerstner (01:20:43): Yep. That's 23,000,000 of total venture raised, I think, prior to IPO. David Sacks (01:20:48): Think about what that means. If a lot of those unicorns are fake, what does that say about innovation in the American economy? This narrative over the last decade that the pace of innovation had fundamentally increased because of the availability of tools and technology And so you had a lot more uniforms being created. I mean, I remember back in, I don't know, like, a decade ago or 2010 era, let's say, you know, there were maybe was, like, 20 to 50 unicorns a year, may maybe 20 unicorns a year. Jason Calacanis (01:21:21): There were Arguably 10 to 20, girly, great companies formed a year in Silicon Valley or in the tech industry? In the west. Kind of twenty point. I mean, that's true. David Sacks (01:21:32): I remember when Andreessen kinda gave this this talk about it, maybe a dozen years ago, he said then 17. There's, like, 17 important companies created every year in Silicon Valley and your goals VC is to be in 1 of those 17. Then all of a sudden, we had was it, like, a 100, 200, 300 unicorns a year? Jason Calacanis (01:21:50): Yeah. I mean, if you David Sacks (01:21:51): And so the question is how many of them are real. Jason Calacanis (01:21:53): Well, I mean, Brad was just talking about that you're giving a 50 x multiple. 50 times top line. I'm not talking about earnings, folks. I'm talking about top line. If you give 50 x to every company, and you only need $20,000,000 in revenue to be a unicorn. And that's unrealistic when compared to the public markets where things are trading at five times top line and twenty times earnings of its high growth. Right? So it's it's just a different market. Alright. There's a major slowdown in China. What we could talk about, Portnoy, and buying back parts of the market real quick. Markets. David Friedberg (01:22:24): Just real quick. I've spent a lot of time on the island of Maui. I think it's really sad. I don't know if you guys ever been to Lahaina. The whole town broke down. Jason Calacanis (01:22:33): Beautiful town. So sad. Yeah. David Friedberg (01:22:35): It's gone. I just wanted to make sure that we mentioned it because, it's pretty depressing what happened. I don't know if you guys have seen the wildfires. Jason Calacanis (01:22:44): In our families, we we all went to that area from vacation, my favorite. Remember that sex? David Friedberg (01:22:49): Yep. Now now he's my favorite David Sacks (01:22:51): code 13. David Friedberg (01:22:51): Yeah. I mean, now now is my favorite place on earth. Been in Lahaina so many times. It's super sad. What happened? I just wanna, hopefully, send them out. Jason Calacanis (01:22:59): On the water with those old buildings and porches, gorgeous, and it's it's just all gone right now. So, yeah, this global warming thing and these fires and wind, man, what a hot summer. I mean, we could do a whole time. David Friedberg (01:23:10): In Southern Iran, check this out. The temperature hit a 155 degrees. It is 9 degrees warmer than it's ever been off the co the west coast of, the United States right now. There was ninety degree ocean temperatures off of the Florida coast, the sea surface temperature in the North Atlantic, the highest it's ever been vice, I think 7 standard deviations. Jason Calacanis (01:23:32): Forming, or is it, all the hopes? David Friedberg (01:23:36): Look. The the peep people wanna debate all day long about anthropogenic. Jason Calacanis (01:23:40): I'm asking you. David Friedberg (01:23:42): I'm telling you with, like, absolute certainty the data right now is unfucking believable. How hot and how dangerous the earth is becoming. And we're seeing not just the fire in Maui, the Speaker 6 (01:23:56): sea surface David Friedberg (01:23:56): temperature, which increases the probability of severe tropical storms and hurricanes in the coming season. It's un un unlive. That's why, Jason Calacanis (01:24:05): you know, I got And it's watching David Friedberg (01:24:06): in in Saudi Arabia in Dubai. 130 degree temperature, 95 degree overnight lows. There if you don't have air conditioning, you will die, in a lot of these places. So there are parts of the earth where people cannot afford the amenities and the luxuries that we have. Jason Calacanis (01:24:23): So is it David Friedberg (01:24:24): a world that we all live? Jason Calacanis (01:24:25): Just it's just saying. There is no hopes Okay. There's no harm. I'm I'm the earth's softball right in front of you. David Friedberg (01:24:31): Yeah. The earth is warming the amount of extreme weather is increasing. The significant effect of that is, is, becoming a parent. And, you know, it's, we we could debate 4 hours about what quote can you do about it, but there's just a series of really awful things happening right now. And it's becoming more frequent and more apparent this is a pretty serious thing that we're taking good stuff. Jason Calacanis (01:24:54): All you have to do, Gurley, is follow what you're doing down there in Texas, which has is it the highest renewable energy percentage of any state now is Texas? Greater than Calacanis. So one of the biggest accessories, I saw Some politician from Texas saying we got we gotta get off all these ridiculous. David Friedberg (01:25:11): There's there's no there's no silver bullet. If you wanna talk about the, you know, the fundamental challenge that we all face in terms of whether atmospheric carbon is driving heating or not. And if you, if you follow that track, there is no silver bullet. There is a lot of things that have to go right in a coordinated way, and there are market incentives that make it very difficult for any of those things to actually get done all the way through. Jason Calacanis (01:25:32): But renewable energy and nuclear, you would say are important. 2 of the most important. Yeah. There's David Friedberg (01:25:38): still industrial production. I mean, it's just like you the the the list goes on you know, systems in agriculture. There's a lot of computers. Speaker 6 (01:25:47): What's the Jason Calacanis (01:25:47): clearest path? I mean, if you had to if you said, hey, put 90% of your effort on these three things. It would be nuclear renewables, painting people's roofs with white paint, like this new, paint that's reflects stuff. I mean, what would be in your truck? David Friedberg (01:26:02): That's not gonna change much. No. Let let's see this conversation another time. We've got Brad and Bill here. I think let's I'd love to have this conversation. Jason Calacanis (01:26:08): We should do it. Speaker 6 (01:26:09): Put it David Friedberg (01:26:09): on the document. Jason Calacanis (01:26:09): Next week, we'll do David Friedberg (01:26:10): a big thing here. Speaker 6 (01:26:11): Yeah. Jason Calacanis (01:26:11): So just wrapping up here on sort of, macro. We'll give you a little macro Brad CPI seems like it's measured and consumers seem like they're running out of money and starting to tighten their unemployment, still all time low, still 9,000,000 job openings. Feels like, this is the steady state for the next year, or do you think hard landing, no landing soft landing? Brad Gerstner (01:26:39): Well, maybe Nick can bring up, the first chart. This morning, we had CPI reported. We had the smallest back to back monthly gains in core CPI in over 2 years. Back to point 2% annualizing just over over 2% now. So On a year over year basis, it was 3.2%. Now remember, it was only 6 months ago that people were still hyperventilating about, you know, this 9.1% we saw last year that everybody on this part, I think, was largely an agreement that was COVID stimulated. But, you know, the blue line here represents the consensus estimates of folks like Goldman Sachs, right, which is pretty similar to what the Fed's own limits are. If you go to the next, slide here, Nick, this is what people the current market is betting will happen to the fed funds rate. So the market is saying, like, you know, you've heard Shamase many times higher for longer. I happen to think we'll have higher rates for longer too. But the market is saying we're worried about an economic slowdown that's gonna force the Fed's hand. So the market is betting that the Fed funds rate will come down either because inflation continues to roll or because the economy continues to slow. And so this third slide, which I think is a really interesting one, which which nobody really talks about, but this is the reason I think Drukenmill and other are worried about recession. There's a a measure by the San Francisco Fed, which is called the effective funds proxy rate. Okay? So this is not the Fed funds rate. This is what they say the total impact of quantitative tightening plus rate hikes are. And we're now back to the highest level on that proxy rate since we've been since May of 2000. It's up over 7%. I think that's the reason people are looking at. It says blue line up over 7%. That's the highest effective rate calculated by the San Francisco Fed since all the way back to May of 2000. And this is the concern a lot David Sacks (01:28:36): of people. Brack, could you just explain that why is the effective rate 3% higher than the official rate? Brad Gerstner (01:28:43): Because of quantitative tightening because there's a lot of other things going on in the economy, the impacts interest rates, the rate at which you can borrow. Part of it is there's just less money in the system. David Sacks (01:28:56): Basically. Brad Gerstner (01:28:56): Exactly. David Sacks (01:28:57): Like, just because the rate's 4% doesn't mean you can get access to it. Brad Gerstner (01:29:00): Can borrow. Nobody can borrow at the 10 year rate. Okay? So if you're a company or an individual and you wanna go borrow, you have to borrow at a at a much higher rate. So that is where the rubber meets the road. If you're trying to borrow to buy a house, borrow to buy a car, borrow to expand your business, that the blue line represents a much better, you know, calibration for the level of tightening in the economy. So there is a a a a very strong debate And I would say the market's actually betting here that the fed is overdoing it because of what you see in that blue line, and that the economy is going to slow. The lag effects of this tightening have not yet been felt. And so this gets back to the question we had before, which is where are we in the cycle and whether or not we're gonna continue to have growth. Now really interesting, Jason, Bloomberg's headline today was the summer of disinflation. And we said on this pod 6 months ago, we said it's more likely by the end of 2023, we're gonna be talking about disinflation than inflation. And low and behold, not only not only are are we seeing signs of disinflation, air tickets down 18% year over year, But China just posted actual disinflation. Yeah. Right? Jason Calacanis (01:30:08): So prices are coming down. People are going to, be surprised that There's more products or services available at lower prices, which then could impact the salaries because, hey. We're not making as much money at this company. We gotta cut salaries. Brad Gerstner (01:30:22): I mean, we know that the fed at the start COVID was more like the the curses of disinflation are almost bigger than the curses of inflation and China just saw CPI down 3 10ths of 1% in the month this week annualized. That's over 3 a half that is a major problem for China. So I think we have some some yellow flags here, right, that say do we have too much tightening? If one of the global engines of growth is experiencing this level of disinflation, that's gonna impact the global economy and global demand, etcetera, So yeah. Jason Calacanis (01:30:59): And that's been the pattern of the Fed. Right? They they they seem to react late and then they oversee her. This has been the Veeam. And so David Sacks (01:31:06): There's also just to add one other cloud to the silver lining, it's the amount of debt that's out there. Brad Gerstner (01:31:13): Correct. David Sacks (01:31:15): So both private debt and government debt. Jason Calacanis (01:31:17): Yeah. Consumer debt is high. This a real estate, commercial real estate is high. Get dead everywhere, and people are gonna have to belt tight and maybe austerity and stop spending on some yellow trips. But if Well, yeah. Salaries keep going up mhmm. David Sacks (01:31:33): Let's let's bring this to Jason Calacanis (01:31:34): be fine. This is a Kona Kowa. Who is this? Who are you saying? It's not a Kona Kowa link. Is it and a great Kona Kiyo. David Sacks (01:31:41): Kobay EC letter. Jason Calacanis (01:31:42): Oh, Kobayashi letter. Oh, Kobayashi here? David Sacks (01:31:45): Kobayashi. Yeah. Kobayashi. Jason Calacanis (01:31:47): That's got 300,000 followers. David Sacks (01:31:49): So we have we have record household debt, 17,100,000,000,000 record, mortgage debt, 12,000,000,000,000 record auto loans, 1,600,000,000,000. Record student loans 1,600,000,000,000, which as Drucker Miller points out, have to start being repaid, I think, as of September. Yep. Because Stream Court overturned, fines and constitutional debt forgiveness. Jason Calacanis (01:32:08): Yep. David Sacks (01:32:09): Record 1,000,000,000,000 in credit card debt. That, I think, should be pretty worrying because credit card rates are now around 25%. So credit card debt, it gets the interest on that is it is obviously floating And so when rates go up Speaker 6 (01:32:25): to, you David Sacks (01:32:25): know, where they are now, then it gets it gets very punitive. So Brad Gerstner (01:32:29): David precisely, and this is remember, We're seeing inflation rollover huge, and we have a chips act and an infrastructure. We have massive government spending going on. And we still see inflation rolling over. So I just find it interesting that within six months, we've gone from worrying about hyperinflation to Bloomberg running a headline summer of disinflation. David Sacks (01:32:49): The last piece of it is government debt. So at the rate that the government is racking up deficits, the treasury is gonna have to float something like 3,000,000,000,000 of new t bills by the end of the year. And we're rolling something like 9,000,000,000,000 of old government debt over the next 18 months at new higher interest rates. Jason Calacanis (01:33:11): So there's a lot of debt, and we'll continue that discussion next week as well as the global warming 1 hearts and prayers out to the the fine people of Maui who invite us to come to their incredible paradise. We hope, you all stay safe and have a great recovery. You're in our thoughts and prayers for Rag Gersner, the 5th bestie, for the architect, David Sachs, and the sultan of science. I am the world's greatest moderator and efficient if you're getting married. And for Bill Girlley, Bill, you have some anecdotes about the all in pond. You were we were talking David Sacks (01:33:43): about BG squared. Jason Calacanis (01:33:45): Close on closing on an anecdote here for Bill Gerley. And Close this out, you know. Bill Gurley (01:33:49): Obviously, huge catch Jason Calacanis (01:33:50): up to the Bill Gurley (01:33:50): success you guys have had. It's when you first mentioned you were gonna do this, I don't think anyone had any idea that you had reached this level. And I know the hard work it takes to for you guys to do this weekly. It's amazing. But I was walking down to see you guys share and it goes to about people mentioning all in. I was walking down the street in Austin a few months ago, and a guy came up to me, Gosa. Are you Bill Girly? I go, yeah. And and he says, David Friedberg (01:34:17): you're that Bill Gurley (01:34:18): guy that sometimes talk about on all in, right? Jason Calacanis (01:34:23): Yes. So the guys you need sometimes socks on rolling is your David Friedberg (01:34:26): that's your Jason Calacanis (01:34:27): there's your subtitle of your memoir. The guy they talk about, Sometimes sometimes. Sometimes. Tombstone. There's your tombstone. David Sacks (01:34:34): To your point, Bill, it it it took 10 years of hard work by Jay Cal for the rest of us. We just walked in the street. Jason Calacanis (01:34:39): Exactly. Thanks. Speaker 6 (01:34:40): I I Jason Calacanis (01:34:40): got you all on my shoulders. David Sacks (01:34:42): That's why he thinks he deserves more than 25%. Jason Calacanis (01:34:45): Holding you all on my shoulders. David Sacks (01:34:46): But he don't get more than 25%. Brad Gerstner (01:34:48): Jake, how where are you running off to? Why do we gotta shut this down? Sacks. Sacks it early, and I may stay and Speaker 6 (01:34:53): just keep talking. Jason Calacanis (01:34:53): I was on the world's greatest moderator. And we'll see you all next time on the all in podcast. Bye bye. David Sachs. David Sacks (01:35:08): And I said We open source it Jason Calacanis (01:35:09): to the fans, and they've just gone crazy lately. Besties are You should all just get a room and just have one big huge, George, because they're all just useless. It's like this, like, sexual tension, but they just need to release them out. You're a beep beep. What? Where did you get mercy's artifacts?